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The US Dollar came back with a vengeance on Thursday, with the early impulse initiated early in the last Asian session, and while some may be scratching their heads on the catalyst/s that led to the currency’s appreciation, be reminded that the smart money (large specs, lev funds) has been clearly telegraphing to those paying close attention to the CoT (Commitment of Traders) report that the technical breakout in the EUR/USD did carry a trifecta of major increases in volume, open interest, paired with conducive risk-off flows, a sufficient bundle of factors to understand the side in control of the trend. Be reminded, the DXY and the EUR/USD as a proxy came to test the range breakout points this week, an ideal area for the smart money to consider reinstating positions for what appears to be decent risk-reward opportunities.

DXY & EUR/USD re-testing previous breakout zones

The rapid appreciation in the US Dollar not being attributed to a single clear catalyst on Thursday reinforces the bullish view in the currency, as it clearly manifests a market ready to bifurcate its focus and in no need to resort to external catalysts to re-engage into the US Dollar trend. If anything, Thursday’s low-tier US data (housing, manufacturing) came to the softish side, but it didn’t move the needle in the slightest. What’s more, it will be borderline ‘too opportunistic’ to venture into the argument that Wednesday’s FOMC carried enough substance to have acted as a catalyst of USD strength by itself. Again, if anything, it warned us that the Fed is coming into close proximity of a phase of normalized rates, which implies a slowdown in the pace of hikes. The FOMC minutes did, however, remove a risk event out of the way and cleared the path for bulls to re-engage in long-sided business ahead of the Jackson Hole Symposium, which is expected to offer no new policy inputs by Fed’s Chairman Powell. Watch potential commentary over the flattening of the US curve though, as it makes fresh multi-year lows.

A concern for the Fed: The US yield curve heading into negative

By unpacking Thursday’s movements in risk-sensitive assets, Global Prime’s risk-weighted profile remains in a corrective upward trend, although it looks as if a double-top is starting to be carved out with the subsequent perils of violating the short-term bullish structure. The decline in emerging markets (see the MSCI EM index) coupled with the spike in the DXY, CHF strength and the mild decline in the S&P 500 / US junk bonds pressured the index, which is still holding its ground in part due to the weakness in the Yen or the stability seen in the US bonds market, especially in the 30-yr bond . Once the trendline is clearly broken, it runs the risk of re-igniting the bullish trend in risk aversion, which is supported by the macro picture.

If the risk index breaks the trendline, USD strength may accelerate

One focal point of attention that may shift the fortunes for the US Dollar going forward, despite being brushed under the carpet up until now, is the fluid political situation in the US after Trump’s personal lawyer Mr. Cohen testified against the President himself in what could be a real can of worms. In an interview with Fox News on Wed night, Trump even said that the market would crash if he got impeached. There is talk in the street that the latest Cohen scandal makes it a viable case for President Trump to be impeached. Be it as it may, for now, equity traders in the US don’t seem too perturbed about the prospects. Shifting gears, another potential USD mover is likely to be any new developments in the low-key China vs US trade negotiations, with a 25% tariff on Chinese products that just came into effect in the last 24h. The meetings between the 2 parties have so far yielded no public headlines worth noting.

Chinese markets: USD/CNY back up on USD fortitude

On the other side of the spectrum, the Aussie was dumped relentlessly, as current PM Turnbull appears to be heading to the exit with a new leader and government to be formed in coming weeks, so long as he receives a letter with a majority of MP signatures requesting a new leadership vote. In the meantime, the parliament has been adjourned until Sept 10th, causing enormous political instability. To make matters worse, the decision by Australia to ban China’s Huawei from taking part in the country’s 5G network infrastructure, while flying under the radar, it’s probably an equally if not more relevant news, as it runs the risk of infuriating and causing a tick for tack approach from Australia’s main trading partner (AUD negative). The first cracks are coming to the surface, with Chinese commerce minister saying he is very concerned.

G10 FX: USD dominates as the Aussie struggles in the last 24h

Another currency that succumbed to the US Dollar strength was the British Pound, closing at the lows of the day after a depreciation of over 1 full cent, sending the rate back to 1.28. While hardly a fresh input the market wasn’t already aware of, the fact that the UK government published a set of gloomy technical notices on a no-deal Brexit scenario was enough to move the needle and send the Pound spiraling downwards, very much in line with the well-established multi-month downward trend. As highlighted in recent reports, the Brittish currency appeared the most vulnerable out of the G10FX based on the recent price action and CoT data.

The one currency that held the ‘USD show’ with sufficient determination to limit its losses was the Euro, undeterred by the release of a neutral ECB minutes, which reinforced the view that expansionary policies are coming to an end, although it surprisingly failed to flag concerns about the current political and financial instability in Italy. Worth noting is the fragility in the Japanese Yen, which is so far helping to contain the false sense of neutral risk conditions. The strengthening of the USD and the CHF, with the implications that the former will have for EMs the likes of the Turkish Lira or Chinese Renminbi, won’t sit too well, which may soon re-ignite a resumption of the risk off flows theme.

In the currency universe, a constellation of risk-friendly stars all aligning in the same direction (we’ll call it the trifecta effect) led to some significant directional moves even as London took the day off. The follow-through dumping of US Dollars across the board portrays further evidence that the market has indeed shifted gears amid a major invigoration in the risk rally environment.

The onset of Monday’s renewed risk bonanza can be explained as a result of a trifecta of news out last Friday, including the perception that Fed’s Chair Powell will err on the side of caution once the US enters a ‘neutral monetary policy’ range – 2 hikes away -, the fact that China’s Central Bank reinstated procyclical measures to exert tighter controls over the Yuan exchange rate and fend off capital controls – it implies 7.00 in USD/CNY is the line in the sand -, while the build-up of expectations of a NAFTA deal between the US and Mexico did the rest, in what’s now confirmed as the Mexico-US trade agreement after both parties resolved its differences.

The ramifications of such an overarching risk appetite mode in the markets can be found in an S&P 500 at fresh all-time highs – I am starting to read some forecasters revising their calls for the nth time – , an unloved Japanese Yen, or the major technical breakouts seen in USD-denominated pairs, which raises a red flag as it telegraphs that the ongoing dynamics are now finally starting to negate its bullish macro technicals against certain currencies the likes of the Euro or the Canadian Dollar, each emboldened by its own merits too.

The Euro/US Dollar rate fits the storyline of the USD weakness theme as no other, with Monday’s rise clearing what should have been a tough nut to crack between 1.1650-1.17, as it represented the most accumulation of volume during the June/July range, referred as Point of Control, and often seen as a wall not easy to penetrate. Arguably, the upbeat reading in Germany’s IFO business climate, which rose from 101.7 in July to 103.8, was further fuel to throw into the fire for momentum-type accounts.

The Swiss Franc, the Canadian Dollar, and Gold can also be included in the circle of USD-denominated crosses where the technical breakouts in the charts were significant and scream more pain ahead. Meanwhile, the Sterling, depressed by its own demerits as the uncertainty on Brexit is far from over, still trades below the 25-daily sma which tends to serve as a solid rule of thumb to determine the dominant daily bias. As per the oceanic currencies, especially the Aussie, which remains the most sensitive as a China proxy trade, it appears to be carving out a double bottom after it cleared the air in the political front while embracing the largest USD/CNH decline in more than a year last Friday (over -1.3%), all positive news to cherish by AUD bulls.

Digging deeper into what’s causing the current mass exodus of US Dollar longs, one must remember that the currency has been, as of late, the pick of choice to find shelter in times of risk aversion, as we saw back during the 2nd week of August, when emerging markets imploded the dramatic fall in the Turkish Lira. Therefore, any substantial recovery in risk flows was always going to carry the risk of deleveraging USD-denominated holdings and be diversified into the likes of other riskier currencies. However, that’s just part of the equation to understand the acceleration in USD losses, as in order to goll full circle, we must put into perspective where we are in the US tightening cycle and why is crucial to follow every single change in the narrative by the Fed.

The market sees two extra rate hikes by the Fed as pretty much baked in the cake this year, with few probably to argue on that; if you do, just check the steady trajectory of US 2-yr bond yields, which is far from what we are seeing in the longer-dated premium. In a nutshell, the market is expressing the view that in the short–term, it should be smooth sailing for the Fed to keep raising rates, but face some major challenges afterward as the fiscal stimulus fades, housing slows down or protectionism starts to bite.

In line with the nature of markets, constantly looking to discount future events into today’s price, we’ve come to a point in which to the question, how proactive will the Fed be raising rates once neutral rates are achieved, investors must start to form an opinion. The commentary by Fed’s Chain in Jackson Hole last Friday that the economy is neither at a significant risk of overheating nor facing runaway inflation past the 2% mark, were enough clues for market participants to make the assumption that the Fed is headed towards a period of pause in interest rates or at least, a much slower pace of hikes. Yes, that’s how far ahead markets take aim to filter out new information into today’s prices! Essentially, by looking at the recent depreciation in the US Dollar, the market is telegraphing that it expects the tightening campaign by the Fed to be transitory before a re-assessment of the US economic conditions, and as of today, based on the US yield curve (2y-10y), it looks as though the hope in sustainably economic prosperity via orthodox policies is fairly low.

As per the outperformance of the Euro, which deserves its own paragraph to end today’s chronicle, one could make the argument that if we were to see German data pick up again, as it was the case on Monday, coupled with a more open-minded approach by the US on its aggressive protectionist policies on trade (Monday’s deal with Mexico adds to the case), one can expect market participants to keep re-allocating capital into the Euro, as it would help pave the way for the ECB to stand more determined in an eventual transition from an easing era into tightening rates (starting from summer of 2019). It’s precisely that narrowing of monetary policy divergences between the Euro and the US, as depicted by the substantial spike seen in the German vs US 10-year bond yield spread (from -2.58% to -2.48% in 2 weeks), that the market is looking to constantly anticipate, with the permission of risk sentiment and last but not least, a still ballooning risk premium between the Italian and German 10-yr bond yield spread, although for now, the market appears to have brushed any Italian woes under the carpet, as the Euro embraces as no other the risk rally.

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Market Thoughts Aug 29: The USD Puts Up a Fight as the US Yield Curve Steepens

While contrarians could argue that the US Dollar was poised for a slowdown if not a reversal of its oversold status, what appears to have moved the needle in favour of the world’s reserve currency on Tuesday, as North America came online, was a blockbuster CB consumer confidence reading at 133.4, the highest since 2010,. The reading embodies the ebullient mood in the midst of an equity market (S&P 500 as the benchmark) that keeps making history before our very own eyes by reaching fresh record levels.

Ironically, the strong US number, and widely perceived as the impulsor of the US Dollar recovery since the US morning hours, comes in contradiction to the recent Univ. of Michigan report, which disappointed in August. While not having an impact on the US Dollar per se, the sudden increase in the US July adv goods trade deficit to $72.7b vs $69b is not going to sit too well with US President Trump. The deterioration in the trading activity came mainly driven by a decrease in international agricultural exports amid a stronger USD and the introduction of protectionist policies. Watch out Trump, as the BIS (Bank of International Settlements, often referred as the bank of central banks, through its Chief Agustín Carstens, eloquently explained in a presentation at Jackson Hole, protectionism may set a ‘’succession of negative consequences’’ that jeopardizes decades of global economic progress.

By the end of the day, the US Dollar climbed back from its hole by posting moderate gains against the Sterling (UK PM May reminded us that a no Brexit deal is better than a no deal), Japanese Yen (battered by risk on), and the Aussie (US-China trade stand-off weighs), while still more work needs to be done to violate the short-term bullish dynamics against the strong currencies this week, which include the Euro (momentum-type traders have been piling in amid widening of the 10-yr German vs US yield spread), the Canadian Dollar (given the benefit of the doubt that a NAFTA deal looms near, asserted by comments made by US Treasury Secretary Mnuchin), the Swiss Franc (exhibiting impressive strength under both risk-off & risk-on conditions in Aug), and the Kiwi (given an impulse on improved domestic data). In the commodity space, gold went back to its losing days, reinforcing the notion that the metal has very much transitioned into a proxy to express USD strength, as opposed to the conventional view of a safe-haven asset.

It’s worth noting that Tuesday’s turnaround in the EUR/USD comes at a critical juncture (100-day sma at 1.1730), while it also failed to close above the 1.17 round number, all well-blended and resonating with a much more bullish outlook in the long-dated 10-yr US bond yield market, spiking to 2.89% from 2.85% just 24h ago. This vigorous move has immediate implications as a potential disruptor of the bullish EUR/USD bull trend and as a result, see a more combatant USD, given that it has led to a significant steepening of the US yield curve (positive for the US economy) and similarly, to a major bearish structure breakout on the German vs US 10-yr yield spread, a key driver of a higher exchange rate as of late.

What should tentatively appease market participants and allow to keep risk currencies fairly well bid is the fact that the Chinese Yuan has continued to strengthen against the US Dollar as speculators flee the market, last trading circa 6.8, on par with the offshore USD/CNH. While it may be argued that the Aussie may see mounting pressure from this week’s hard-line stance by US Trump on China, blatantly stating that this is not the time to keep negotiating (focus is on NAFTA), the currency has definitely been extended a lifeline by the PBoC’s counter-cyclical measures, which in layman’s terms means, the Yuan value will be artificially set wherever the Chinese Central Bank please in the daily fixing, hence itseems a risk that can be brushed under the carpet for now.

Which leads us to the broader spectrum of emerging markets, where do we stand? Here is where investors must continue to monitor any potential setback in the risk environment, especially if we were to witness sustained strength by the US Dollar. However, the strengthening of the Yuan has really been a watershed that has ignited solid momentum behind the Shanghai Composite and the MSCI EM index, as the two most heavyweight representations of Asian equities (exc-Japan). A brief yet important note in Japan before moving on: Today, Bloomberg reports that foreigners have dumped near $35b in Japanese equities this year, in what’s seen as the biggest exodus in over three decades, according to data from Japan Exchange Group Inc. It’s hard to resist having one’s funds parked in a rather stagnant Japanese equity market when the fiscally-induced US equity market is gifting investors with fresh record highs every other day.

The gyrations in EM currencies, especially in the Turkish Lira, while weaker on the renewed momentum by the USD, appear within contained ranges. A report by the WSJ that the German government is mulling the possibility of providing financial aid to Turkey unveils two hints, those are, a German bank (Deutsche bank) might be in trouble, but at the same time, further assistance is being offered, and that’s what the market cares about as it potentially increases the means to confront an escalating economic crisis amid the collapse of the domestic currency. As a precursor of what’s to come, Moody’s downgraded 20 banks in Turkey on Tuesday.

In other news of interest, the Senate confirmed Richard Clarida as the Vice Chairman of the Board of Governors of the Fed, an important vacancy that gets filled in who becomes the right-hand man of Jerome Powell. Clarida is viewed as a pragmatic, centrist and well-regarded policy-maker that represents continuity of the current normalization path the Central Bank is embarked upon. In Italy, more evidence is coming to the surface that Italy remains adamant on its intention to breach the budget deficit limit set by the EU, a worry that was well-telegraphed by bond traders, sending the Italian bond yield premium higher; while not a driver in the Euro in Aug, once Sept comes, expect the spikes seen in the German vs Italian yield spreads to add more weight into the single currency valuation as the date to finalize figures and targets (end of Sept) approaches. Last but not least, a red flag for investors is the latest reports on North Korea, as according to CNN, a letter sent to to the US warns that all the efforts to denuclearize the region may fall apart as Trump remains unwilling to visit North Korea and make further progress.

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Aug 30, 2018 10:59 am
The Sterling was the absolute star on Wednesday, while the Australian Dollar and most notably the Japanese Yen were the least favored, as market participants continue to embrace risk flows. The S&P 500 ended printing a fourth consecutive record high as tech stocks led the way, with bonds sold-off across the board.

Once you open up your charts this morning, it will immediately scream at you the move in the Sterling. Here, a triple whammy could explain the vast gains in the last 24h. First of foremost, just as Draghi’s ‘whatever it takes to preserve the Euro’ represented a watershed moment for the single currency, the EU’s Brexit negotiator Barnier shocked the market on Wednesday with some verbal remarks that in my own opinion, and the market seems to agree, it’s a game changer. This whole Brexit saga has many characteristics that could be applied to ‘game theory’. Barnier said: “We are prepared to offer a partnership with Britain such as has never been with any other country.” The comment unleashed an instantly epic outbalance of demand towards the Sterling, just as a market positioned overly short GBP run to the exits to fuel the rally, while the overall risk sentiment anchored the move too. This move in the Sterling, based on where the price closed by 5pm NY time, with null appetite to take profits off the table, and considering that the side to endure the most pain caught wrong-footed is unequivocally the sell-side, it has signs written all over the wall that there is more pain to come for Sterling sellers.

If you are going to turn into the Australian Dollar as a currency to engage on Thursday, be reminded that in the last 24h, the decision by Westpac to raise their standard variable rate for mortgages by 14bp to 5.38% on increasing funding costs has dented its appeal. The immediate effect led to the Aussie rates market to rally across the board as it translates in yet another dampener for the RBA to raise rates, starting to feel more like a 2020 story than 2019, that’s at least how the market is pricing it, with a 50% implied chance by Feb 2020. To understand why Westpac’s rate hike is a negative input for the AUD, the adjustment implies squeezed households (less consumer spending as the pressure to save increases) especially if the other big four banks in Australia follow suit to hike mortgage rates too, as it’s expected. This will inevitably lead the RBA to be even more cautious by holding for longer to guarantee financial stability amid high levels of household debt. It’s looking increasingly likely that both oceanic currencies are setting up for a sustainable period of neutral to dovish rhetoric by its respective central banks, just as other western economies (Europe, the US) go through a normalization phase. Watch these ongoing policy divergence as it may represent solid opportunities for trends to develop.

Also, while not surprising, by scoping out the second reading of the US GDP on Thursday, it presented further evidence that the economy is on a fiscally-led bright growth path, as the data came upbeat at 4.2% courtesy of a downward revision in imports, and bears out the notion that the Fed is on track for a couple of extra rate hikes before year-end. However, don’t forget, that the 2018 rate hike story is starting to be water under the bridge as the market is shifting its focus towards the type of monetary policy attitude the Fed will have once rates reach what’s perceived as neutral based on the middle point of the Fed’s inflation target mandate, which as the newly appointed Fed Vice Chairman Clarida seemed to suggest earlier on the week, appears to be closer to 2% than 3%. And for now, the message that Fed’s Chairman Powell is sending, judging by its latest intervention at the Jackson Hole, the risks are that next year’s tightening mode is set up to be much slower.

It is this shift in market attention, and well reflected in a predominantly depressed US yield curve, combined with very generous levels of risk appetite, that is putting a dent in the US Dollar, with Wed’s gains far from impressive, and only achieved against the most vulnerable currencies (AUD, JPY). By checking the Fed’s favorite yield curve (10y-3 month) as a predictor of recessions, while at the lowest since the GFC, it’s still at a safe 80bp away from inverting. One cannot help but to think that in the recently published research paper by the San Francisco’s Fed was fairly astute choosing that curve as the most accurate predictor of trouble in the economy as it stays at a rather safe distance, as opposed to other conventional readings such as the 10y-2y, which is edging ever closer to an inversion, last at 20bp from inverting. If you have time, read the latest reportI share on my Twitter account about Morgan Stanley’s take on the US yield curve, as they argue that the market has undergone a fundamental shift and how the USD might now be more vulnerable to a flattening of the curve as the import of capital inflows recedes.

Another currency that continues to enjoy the benefit of the doubt in the form of a NAFTA deal agreed is the Canadian Dollar. The latest remarks by Canada’s NAFTA negotiator is so far telegraphing an optimistic stance, saying that productive talks are expected this week. Until now though, not substantial breakthroughs have been revealed and the market is simply pricing in that is expect a positive resolution, as seen by the bilateral agreement on trade between the US and Mexico earlier on the week. However, note that judging by the most recent comments by main actors, including US Commerce Secretary Wilbur Ross, the session of talks between Canada and the US this week have set out with pressing issues still far from reaching consensus. Overall, and with solid gains in Oil, heading back up towards the $70.00 mark, the Canadian is so far poised to benefit from the current friendly environment while awaiting a resolution on NAFTA. If you are to trade the Loone this week, be mindful of the enhanced risks of sudden price movements depending on NAFTA-related headlines.

By analyzing the most recent price action in the Euro,it continues to trade stubbornly steady, as the 10y spread between Germany and the US reverts its fall on Tuesday, while the Italian and German 2-yr yield spread also came down even as Deputy PM Di Maio refuted reports that were suggesting that a government representative called on the ECB to provide assistance to Italy via a new QE program. A source of concern for Euro traders should be the resumption of the downtrend in the Turkish Lira, although it looks like talks emerging that Germany or the European Union might be providing financial aid (not confirmed) may be temporarily appeasing investors that the contagion effect can be mitigated.

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s we come to the end of August and roll on to a new month of trading, the picture in capital markets is not looking as rosy as in the prior 2 weeks, with risk aversion returning to the market, as emerging market currencies implode once again. While in other circumstances the Argentinian peso wouldn’t be taking the spotlight, that’s how relevant emerging markets have become,and the South American currency embodies like no other the loss of confidence by investors, down as much as 20% at one stage on Thursday, which led to an unsuccessful intervention by Argentinian authorities (sold $330m) and the IMF agreeing to revise its bailout terms to assist the battered country’s economy.

The deterioration in the value of emerging market currencies, including a troubled Turkish Lira, was not immune to the S&P 500 this time,although the moderate 10bp decline should beseen as a victory judging by the performance of the Yen or EMs. The MSCI EM index, after a meritorious 2-week recovery, also suffered the consequences by falling from 44.09 to 42.92, erasing the latest 4 days of gains. Demand for US bonds was significant across the board, with 30-yr Treasury yields down 3bp from this week’s peak, currently at 3.01%. Meanwhile, US corporate credit (junk bonds) followed suit and sold off as investors run to safer assets, while we saw further evidence of the decoupling of gold as a safe-haven vehicle, unable to find enough buyers to keep the $1,200.00 even on such fractious ‘risk-off’ environment in emerging markets.

This negative backdrop in EM led to a deleveraging of risk, and capital flocked off back into the Yen and to a lesser extent the Swiss Franc, which nonetheless, continues to prove the best performing store of value this August. It’s also worth noting that the US Dollar, while stronger against the weakest currencies such as the AUD, NZD, is finding it harder to exploit the renewal of risk aversion as it did back in August. One of the reasons, as explained in a previous report, is a potentially fundamental shift in the US yield curve, suggesting a significant slowdown in capital inflows into the US.

Even as the risk off swing had already been in motion, one key driver anchoring the sell-off was no other (no surprise here) than US President Trump, who succinctly fired back to the Chinese by threatening to impose the pending $200b worth of tariffs on Chinese goods as early as next week. Markets had been clinging to certain glimmers of hope that the introduction of further punitive measures towards China might be delayed all the way up to late Oct.

It’s hard to tell how much of a strategic move to build pressure on China these comments are. Understandably, it led to a reignition of uncertainty, despite in the grand scheme of things, the moves were underwhelming and it feels as though, if this story evolves, it could really put a more long-lasting dent in the appetite of investors to bid risk, as it would confirm the dreaded ‘full-blown’ trade war crisis and a major step backward in globalization, leaving many unpredictable outcomes up in the air, such as to what extent will this affect the USD going forward? Will the Chinese economy slowdown and send shockwaves to the wider Asian region?

One of the risks that appear to have been removed is the relative stability investors should expect in the value of the Chinese Yuan after the reintroduction of counter-cyclical measures by the PBOC, which means that disorderly moves are not anticipated. Today, USD/CNY and the offshore CNH rate, are trading at 6.84 and 6.86 respectively, with the Chinese PMI as a key focus.

Amid such foggy global environment, and with economic data still coming to the soft side, the Australian and New Zealand Dollar were both punished, finding consistent supply. When it comes to the Aussie, on top of Westpac’s mortgage rate hike decision on Wed (more dovish RBA), a disappointing set of data including Aus Q2 capex and building approvals, sent a reminder of the jitters surrounding the economic outlook and housing; add a weaker Chinese Yuan, and the Aussie was thrown all the ingredients to go through some pain. Similarly, the Kiwi had to endure mounting selling pressure too, mainly on a depressed ANZ business confidence survey, which fell to -50.3 from -44.9 prior, and makes the reading the lowest since the GFC a decade ago.

Turning to the Euro, while soft, it’s definitely finding a lot more buying interest in this current risk-off environment than what we saw in the first episode of risk aversion in early August. The EUR/USD doesn’t trade far from 1.17, last at 1.1670. It might have to do with an overall weaker outlook on the USD in light of a possible slowdown in capital flows, implicit upward pressure applied via an, up until recently, overly long USD market, caught wrong-footed, or even fewer worries that the Turkish crisis may set out a wave of contagion across European banks, now that it’s been reported that some financial assistance is being considered via Germany or others. Fundamentally, as we move into Sept, there will be many moving pieces affecting the Euro, and as a taste of the many inputs to consider, on Thursday we learned that the EU is ready to scrap car tariffs in a trade deal with the US, which would have been positive and still may be, despite Trump threw cold water by blustering that is not enough and adding that the problem on trade with Europe is as bad as with China, but of a smaller magnitude. Scoping out the latest German preliminary CPI for August, the headline came around expectations at 0.1% and should be overall comforting for the ECB going forward.

Two other currencies receiving plenty of attention as of late include the British Pound and the Canadian Dollar, each having to deal with its own drivers, far from being water that can pass under the bridge. UK’s currency, which saw one of the largest gains this year on Wed, failed to find follow through, as the conundrum of Brexit headline risks keep capital flows into the GBP largely on hold for now. If on Wednesday Brexiters were blaring the trumpets on the optimistic comments by EU’s Brexit negotiator Barnier, who surprisingly said “we are prepared to offer a partnership with Britain such as has never been with any other country”, it only took 24h for the wave of excitement to moderate, after Barnier told a German radio that “we must be prepared for any and all options on Brexit”, adding that a no-deal is part of the planning considered. GBP/USD exchanges hands anchored around the 1.30 level. On the other side of the pond, the Canadian Dollar was buffeted by a lower-than-expected Canadian Q2 GDP release, which should not move the needle on a hawkish BoC. The downward pressure seen on the Canadian Dollar, not only reflected the miss in data but the uncertainty surrounding the NAFTA talks, although by assessing the latest headlines, it points towards an eventual deal judging the constructive comments so far.

Looking ahead, the attention for Friday will turn into the Chinese PMI figures as a critical measure to keep track on the economic outlook for China, with the escalation of the trade war with the US posing risks to economic activity. In Europe, German retail sales and EU CPI flash estimates will center stage too, while in the US, the Chicago PMI is due. Remember, this is the last day of August, and from next week, the economic calendar will start heating up, which adds to a quite volatile risk environment, with plenty of moving pieces, from emerging markets, Brexit, NAFTA talks, Chinese vs US trade war, expect Italy to get more airtime, North Korea… the plate is full.

The Aussie ends as the top performer, with a combination of factors at play. Firstly, a diversification of capital flows away from European-centric currencies due to renewed mounting Brexit tensions; next, a rather sanguine research paper published by the RBA on the consequences of an all-out trade war between the US and China. Lastly, there is a sense that China is not playing as hard retaliating the US as one would have feared., leading to an ongoing recovery in emerging market currencies.

In the European currencies bloc, the optimism around a Brexit deal has turned sour, and to a certain extent, the latest headlines appearto suggest any deal is not remotely close by any stretch of one’s imagination. The comments by the EC President Juncker, who said they are far from a deal, sums it up. Making matters worse, UK PM May has reportedly rejected EU Barnier’s improved Irish border offer. As a reminder, the issue of the Irish border remains the main sticking point to see further progress.The Euro and the Sterling, as a consequence of the negative Brexit headlines, felt the pressure. The evidence is in the pudding and despite a fairly constructive risk appetite, with both the US 30-yr bond yield and the S&P 500 rising in moderate terms,both currencies succumbed to the Yen.

In the UK, the latest inflation figures were supportive of a higher Sterling in the early stages of European trading, after a +0.7% climb vs +0.5% expected. If only Sterling traders didn’t have to deal withan environment plaguedby constant Brexit headlines… Unfortunately, wishful thinking for the foreseeable future. The main contributors to a rising CPI included theatre, sea, airfares, and clothing. Nonetheless, later on, the realitysunk in, making these numbers a sideshow that falls short from providing support to the Sterling amid rising Brexit concerns.

While the US-China trade war has been front and center, there are quite a few key intermarket developments playing out in the background one must pay close attention to. One major macro theme continues to be the firm rise in US bond yields, which has led both the Fed’s favorite 10y-3m yield curve to steepen towards the 0.95bp, while the broader 10y-2y yield curve has also seen a sharp steeping move to 0.26bp from 0.21 earlier on the week. A milestone that was also reached this week is the rise of the 10y US bond yield above 3%. What this price action communicates is heightened optimism for a more hawkish Fed into 2019. This is the type of growth in the yield curve that should morph into buying opportunitiesin the US Dollar.

Trump said tremendous progress has been made in North Korea. The headlines were followed by news that the US has invited North Korea’s representative to meet US counterparties in Vienna. Again, as in the case of the US yield curve, since all the focus is on the US-China trade war, it failed to see much of a response by market forces, although one should perceivethis geopolitical news as a positive factor for risk.

The negotiations to reach a trade deal between the US and Canada remain stuck, and it appears as though it’s Canada that this time is playing hardball with the US. PM Trudeau reportedly said he wants to see movement before signing a NAFTA deal. The Canadian Dollar has been one of the worst performing currencies this week as the stand-off in making further trade progress continues. The rhetoric in the negotiation has also ratcheted up, with the US warning that month-endis the hard deadline.

The New Zealand Dollar found renewed buying interest on the back of strong Q2 GDP numbers, coming at 1% q/q vs 0.8% expected and 0.5% prior. The market has immediately perceived the economic data as very positive, as it doubles the projections from the RBNZ, which may cause a re-pricing of a slightly more hawkish Central Bank, even if that seems to be a 2020 story. The data, after all, is backward-looking, and business confidence levels in NZ remains at GFC low levels.

The overnight release of the Bank of Japan monetary policy offered little new insights. The interest rate was kept at -0.1%, the 10-yr yield target at 0%, with no alterations in the forward guidance, vowing to maintain extremely low rate levels for an extended period of time. The decision to keep enacting a policy centered around a control of the yield curve came at 7-2. Kataoka and Harada were the dissents. The post reaction in the Yen was very muted, in accordance to the uneventful outcome.

The main talking point in the forex market is the weakness in the US Dollar, with the DXY exhibiting some real technical damage just as the Euro clears the $1.1750 area with astounding ease. What’s causing this fragility in the USD even as expectations of a more hawkish narrative by the Fed into 2019 firm up? According to Morgan Stanley, it has to do with the new status of the US as a capital importer amid the inability of the country to fund its current account and fiscal expansion domestically. When the phenomenon of a rise in bond yields is not just US-centric but it’s broad-based, the US fails to attract sufficient capital.

The views by Morgan Stanley marries quite well with the narrative of renewed momentum in global growth, which is invigorating major central banks to gradually return to a path of normalization on monetary policies. We’ve seen it in the case of the Fed, BoC, BoE, ECB is laying the foundation for a tightening campaign from mid 2019 – ECB’s Praet speech on Thursday highlights this view – , and as a symbolic moment, Norway’s central bank was the last to hike rates on Thursday for the first time in 7 years. A Central Bank that still provides no hints of adjusting its expansionary policy any time soon is the SNB, mainly on fears of a Swiss Franc rise should the proverbial hit the fan and risk-off flows make a return into the CHF safe-haven appeal.

The notion that even a trade war between the US and China may not have the detrimental effects initially feared is providing a cushion of hope on risky assets too. The S&P 500 closed at a fresh record high, while the Dow Jones is about to after rises of 0.78% and 0.98% respectively. The recovery in EM currencies on USD weakness is another encouraging sign. On a more broad notewith direct implications on EM is a report by Bloomberg on Thursday, suggesting that China is planning to cut import taxes, applicable globally, effective in October. However, if that were to be the case, based on WTO rules, the US should also be included in this treat, which would be counter-intuitive to the retaliatory approach China probably wants to take to undermine the US competitiveness. This one is a major focal point for the markets as we head into the end of September, so keep a close eye.

There is also an argument to be made, as Goldman Sachs notes, that sooner or later, the continuous depreciation in the USD is going to provide some excellent opportunities to go long the currency. This view is backed by the notion that the market has an awful to reprice should, as it appears to be the case judging by US bond yields, the Fed raise its interest rate towards 3%. Clues of their intentions to hike above the long-term neutral level of 2.5% were well telegraphed by Fed’s Brainard at a speech in Detroit earlier this month and subsequently backed by Fed’s Evans. AsJan Hatzius, an economist at Goldman notes: “Many investors doubt that the FOMC will be comfortable taking the funds rate above its estimate of the ‘neutral’ level of 2.75-3.0%. We think this will be much less of a barrier than widely believed because most FOMC participants already see a restrictive stance as likely to be appropriate.”

The Sterling continues to defend its fortified position as the best performing currency in September. Judging by the price action, it’s behaving as a beacon of stability and one would think that’s a reflection of renewed optimism on the Brexit negotiations. However, after all said and done, the Brexit talks between the UK and the EU in Salzburg didn’t quite yield the results that would satisfy the Brexiteers camp, with the Irish border still a major sticking point. Even if the situation remains very convoluted, and as it becomes quite clear that the Chequers proposal won’t work, the Sterling found respite after another strong economic release, this time in the form of a +0.3% rise in UK retail sales vs -0.2% expected. The data in the UK has been so impressive that Viraj Patel, FX Strategist at ING, is now calling for 1.36-1.38 should three key conditions be met heading into October (read below). The next moment of truth in the Brexit talks is set to be on Oct 18th ahead of the Nov 17-18 summit.

The economic growth numbers for Q2 in New Zealand came out impressively high at 1%, which led the Kiwi to rise above any other G10 FX on Thursday. The strength in the components that form the GDP was broad-based rather one-offs, encouraging NZ banks to now see strength in Q3 and Q4 numbers as well. Considering that the RBNZ had been quite cautious in its projection for growth in Q2 at 0.5%, the surprising data is probably going to see the unwinding of rate cut expectations priced into the NZD. Before the data release, the market had been discounting over 40% chances of a rate cut in the next 12 months. If economic growth starts to now develop some animal spirits and feeds through into business confidence – at depressed GFC-levels -, that’s what it may take to dispel any risk of a dovish RBNZ going forward. For now, the Central Bank is still taking comfort from the fact that the rest of the key economic indicators the likes of retail sales, inflation remain quite steady.

A currency that together with the Japanese Yen continues to be unloved as the uncertainty of a trade deal with the US continues is the Canadian Dollar. The latest we learnt, via Bloomberg, is that auto tariffs are one of the main sticking points preventing further progress. According to Bloomberg reports. “Canadian negotiators are seeking assurances the country will be exempt, or given some sort of preferential treatment, in Section 232 tariff investigations, three officials familiar with talks said. One of the officials said the 232 issue is emerging as the biggest problem, while another said it’s among a handful of key issues,” Bloomberg’s Josh Wingrove writes.

The British Pound was by a country mile the worst performing currency on Friday, as the prospects of a hard Brexit just went up a few notches if one considers the latest events. Not only we have the realization of the EU vs UK Brexit talks in Salzburg being portrayed as a disastrous outcome by the UK media, but UK PM Theresa May appears stubbornly opposed to any concessions on the Irish border. This scenario implies that any disentangling of the current impasse looks far ahead. Friday’s speech by the UK leader was a vivid reminder that the UK really stands by its hard-line position to stay away from any deal that would damage the integrity of the Kingdom. The familiar line by May, ‘a no deal is better than a bad deal’ was dominant and that’s scaring markets.

To make matters even worse, over the weekend, CNBC reports that Theresa May’s team may draw up contingency plans for November election. CNBC notes that “two senior members of May’s Downing Street political team began wargaming an autumn vote to win public backing for a new plan.” The convoluted political landscape is leading some to believe that the talk of a potential snap election in the UK and a potential leadership challenge ahead or into the Tory party conference is a real possibility. Markets hate uncertainty, therefore, the deterioration in the Brexit negotiations runs the risk of keeping the sentiment quite bearish on the Sterling this week. The price action in the currency on Friday screams a market that has been caught on the back foot having to re-assess its exposure.

Over the weekend, we also learned that China has canceled talks with the US amid the escalation of tariff threats. The news is a negative input for the Aussie and the Kiwi, as reflected by the opening prices in Asia. However, the cancellation of the Chinese – US trade talks has been a risk well telegraphed yet the reflationary trade (higher equities + global bond yields) has stubbornly continued its course. One must follow the price not the headlines, and as the chart below indicates, the market is far from communicating risk-off flows entering the markets at the open of Asian trade on Monday. Late last week, RBCmade the case that as long as the US action don’t undermine Made in China 2025 strategy, the market reaction should be benign. RBC states that“China views the former as bearable with the help of more domestic stimulus. But China would view the latter as an existential threat requiring a more aggressive response.”

In emerging markets, the highlight on Friday was the spike in the Shanghai Composite, which should be another obvious sign that the market is starting to look past the Chinese vs US trade dispute as one that would destabilize the region. By checking at the EM currency index, which encompasses the top EM currencies, the continuous decline in the price sends a message that the outlook for ‘risk on’ conditions remains firm. In the big picture though, the historical volatility between EM and DM shows a huge divergence, which means that EM economies, amid higher funding costs, are far from being out of the woods.

It’s important to note, as Morgan Stanley observes, that the strength in the US Dollar in 2018 has been dominated by low-quality short-term flows, those derived primarily from investors cutting exposure via EM on declining returns at a time of increased attractiveness of low-risk short-term investments into the US. If one combines this view with the struggles of the US to import sufficient capital at a time of higher global yields around the world, it argues for the potential risks of the USD upside capped as long as the recovery in the reflationary trade is maintained, in other words, a ‘risk on’ market profile characterized by rising equities as well as the steepening of the curves, as seen in the US, which is also translating in the dumping of global bonds, hence higher rates to be paid, in other DM.

In Canada, ahead of this week’s BoC monetary policy decision, the marginally positive data on retail sales and CPI from last Friday, reinforces the notion that the Central Bank should stay on course for a hawkish statement. However, a further rise in interest rate may have to be put on hold until a resolution of the NAFTA talks, where a hard deadline has been established for the end of the month. White House’s Hasset said on Friday that the US is getting very close to NAFTA with Mexico but not with Canada. The negotiations between the two North American countries have been characterized by being quite secretive with vague comments at best, so the market is understandably worried about a no deal, and as a reflection, the Loonie has failed to find enough buying interest as of late.

This week’s key event is the FOMC meeting. The market unanimously agrees that a hike in interest rate by 0.25bp is a done deal. There are not that many tweaks the market is expecting, with the general view being that the trade strains with China and Canada are unlikely to affect the hawkish view. The focus will be on whether or not these trade tensions affect the ‘dot’ projections as well as the term ‘accommodative’ when referring to the current policy still applies.

Headlines over the weekend by ECB’s Nowotny (Governor of the Bank of Austria) should reassure macro traders that the ECB is indeed on a steady path towards normalization by mid next year. Speaking on Austria TV, the policymaker said that it makes sense to normalize policy quicker. As a line that speaks loud and clear is when he referred to the current policy as one that should be applicable and subject to a crisis, which comes in stark contrast to the ‘really good economic situation in Europe’. The recent economic surprise indicators by various research banks do support the view of the EU data picking up, despite last Friday’s slew of PMI releases across Europe came quite mixed.

An underpinning factor for the Australian Dollar has been the news that Australia’s AAA credit rating has been reaffirmed by S&P + the negative outlook removed. The agency said that “fiscal prudence” & “better budget performance” was at the core of this positive revision. Australia’s Treasurer Josh Frydenberg via Twitter said that “It’s a strong expression of confidence in our economic mgmt. We are 1 of only 10 countries w. AAA rating from all major agencies.” This week, the Australian Dollar flows will be determined by China’s trade situation and the FOMC.

The New Zealand economy received positive news from Moody’s, affirming its AAA rating while maintaining a stable outlook on the economy. As a reminder, it comes on the back of a very strong Q2 GDP reading last week (1% vs 0.8% expected), which may effectively lower the prospects of any rate cut by the Central Bank. The RBNZ is set to release its latest monetary policy statement this week, hours after the FOMC.

The Sterling found enough buying interest to revert some of its recent sizeable. The currency has transitioned from being the worst performer last Friday to accumulate the highest gains on Monday. A slew of more constructive Brexit headlines were sufficient for short-term flows to return back into the Sterling. German’s European affair said a Brexit deal is still possible by November, while UK’s Brexit secretary Raab sounded fairly optimistic that a deal is still within reach in the next 8 weeks. Be ready for the constant mix of headlines over Brexit to become the norm in coming weeks as politics rule the price.

The selling pressure was felt in the US equities as the ongoing trade tensions and US political issues hogged the headlines. On the latter, reports indicate that US Deputy Attorney General Rosenstein will meet Trump on Thursday to present his resignation, with some arguing that it may have been behind the imbalance of supply seen in stocks. On the China trade war front, while the Asian giant appears to still be willing to sit down, they are not going to budge, and more signs keep emerging that they are prepared for a long-lasting fight if needed. For now, markets appear to have discounted enough into the price of assets.

ECB’s President Draghi animated the market with some juicy commentary on inflation expectations. The policy-maker, in a speech on the state of the EU economy at the ECON Committee in Brussels, said that he sees “relatively vigorous pick up in underlying inflation”. The headline is further evidence that the ECB is slowly but surely moving towards the normalization of policies. While the Euro failed to hold onto its gains against the USD, it sent both the 2y and 10y German bond yields into new trend highs at -0.51% and 0.51% respectively, as the yield curve keeps steepening to the highest levels since early August ‘18.

A major risk event for the markets this week, aside from the FOMC and the BOC policy meetings, is the Italian budget conundrum, which is part of the reason the Euro couldn’t keep the Draghi-led gains. We saw a spike in the Italian 10-yr bond yield as a reflection of the growing concerns ahead of the budget plan going through the parliament this week. The fears orbit around the Italians overblowing EU’s budget deficit limits on the promise of a basic income, which if true, is rather unrealistic unless they resort to a larger deficit in violation of EU treaties. The range that appears to be the make or break for the market is 3%, with any deficit larger to translate into a higher Italian premium and a lower Euro. Even above 2% may see some jitters.

Shifting focus to emerging markets, it’s hard to imagine that EM currencies are out of the woods in an environment where Central Bank around the world is gearing up for an era of normalization. The latest observations by ECB’s Draghi is another reminder that the Central Bank is laying the ground to join the likes of the Fed, BoC, BoE in the tightening of policies. The steepening of the US curve and higher ‘real’ US yields makes it a toxic combination that may see further outflows of capital away from EM back into the US. The major Central Banks left in limbo having to still deal with limited inflationary pressures are the Asian/Oceanic economies, the likes of the RBA, the RBNZ or the BoJ.

There were little signs that the heightened trade tensions between the US and China are having any significant impact on German business confidence. The IFO business climate came at 103.7 vs 103.2 exp. On the grand scheme of things, the reality is that the economic projections have decelerated a notch with the economy expected to grow at an annual pace of 1.8-1.9% vs 2% earlier on the year. Sooner or later, the uncertainty emanating from US-led trade wars may feed into confidence.

Our prop macro risk-weighted index remains above the 100 hourly moving average. As a rule of thumb, as long as the index is underpinned above the indicator, we should expect the overall market conditions to remain supportive in attracting ‘risk on’ flows. Last week, the index broke outside a pennant pattern on the weekly chart, reinforcing the view that it’s ‘game on’ to keep playing the reflationary trade as equities keep rising in combination with the steepening of the US yield curve and higher DM bond yields.

The price of Oil saw a major breakout above the stickingresistance of $70.00 following news that OPEC and allies are not considering to boost output. The rise in Oil further anchors the notion of the reflationary environment in play amid higher energy prices. This has direct implications, especially for a region like the European Union, strengthening the case for inflationary pressures to stay relatively elevated.

Following the injection of volatility by the Federal Reserve policy statement, which as widely expected, rose its interest rate by 25bp to 2-2.25% range, the performance by the USD was far from impressive although when all things considered, it feels as though at least it saved the day. We see a bearish outside day on EUR/USD and USD/JPY, a doji-like indecision candle in GBP/USD and USD/JPY, a major absorption in AUD/USD and NZD/USD, while the Canadian Dollar remains unloved as the prospects of a NAFTA deal worsen short term, which translated into a bullish breakout of the 1.30 key area in USD/CAD. The overall positive USD performance didn’t help gold, while oil prices keep the bullish momentum, holding onto recent gains above $72.00. The bearish outside day in the S&P 500 does not bode well for risk.

We kicked off the Fed outcome by an algo-led sell-side campaign to exploit the initial policy statement in response to the ‘accommodative line’ being removed, which was a dovish sign as the market interpreted less scope to raise rates in the future. The Fed kept is a firm view that the jobs market remains strong and that risks remain roughly balanced. When comparing the dot plot of today vs the June meeting, no real adjustments took place, with the majority of members still expecting a range between 3% and 4 %. The figures below still suggest 3 rate hikes during 2019 and only one in 2020. However, it gets interesting if one analyzes the first time projections were published for 2021, as the expectations are for no further hikes, and here lies part if not most of the reason for the flattening of the curve.

source: Forexlive

In terms of the Federal Reserve forecasts, the changes were not impressive for the interest of USD buyers, as the growth estimates were revised slightly higher for 2018 (no surprise here), with no positive adjustments in the unemployment rate, and a slight downgrade on the inflation outlook heading into 2019.However, something to take into account going forward as it may remove support for the USD and turn the Fed more cautious, is a note from BNY Mellon, stating: “Survey-based data (“soft” data) in the US has been consistently running stronger than data related to real activity (“hard” data).”

During Fed Chairman Powell speech, the main takeaway is how he played down the removal of accommodative from the statement, making the case that data dependency will be far more relevant going forward than the rather anecdotic and merely descriptive nature of having removed accommodative in the statement. That helped the USD recover its early losses as it reinforces the notion that the path of least resistance, based on the US data, is towards higher rates. As such, the market is now pricing in 75% chance of another hike in Dec.

When scanning through the post-Fed reaction in fixed income, the sharp drop in the 10yr US bond yield from near its May peak at 3.10% down to 3.05% has led to a significant flattening of the yield curve. While the short-term outlook for rate hikes firms up, as reflected by the subdued move in the 2yr bond yield, the market is growing less convinced over the assumption of rates staying above the neutral setting heading into 2019. The drop in the S&P 500 further anchors the view that Wed’s market play is to dial down bets on the reflationary trade (widening of yields), which as a reminder, is one driven by the optimism towards anera of higher growth and inflation.

The German bundswere able to capitalize the FOMC outcome by narrowing the US yield spread advantage, which should play in favor of the Euro as an underpinning factor should riskconditions be sustained at relatively stable levels. One focal point for the Euro is the Italian budget deficit, and depending on the official numbers, which are due in the next 24h, we will see volatility pick up. The latest by the Italian press point at a deficit target of 2.4%. The Italian bond yields came off on Wednesday, an expression by market forces that they expect the Italians to walk the talk and respect the limits imposed by the EU.

The risk sentiment environment, judging by our proprietary macro risk-weighted index (RWI measures 9 risk-sensitive assets), has now broken below the 100-hourly moving average for the first time since Sept 11. The sharp downward move implies caution around bidding up risk, and in the currency market, this might translate in reservations to be overly committed to play longs the likes of commodity currencies (AUD, NZD, CAD) and be tentatively positive for JPY, USD as safe-haven bets. On the big picture, the weekly macro RWI recently broke a pennant continuation pattern, so one must keep in mind that the overall theme is still supportive of ‘risk on’ trades.

A recent development that must be emphasized is the notion that the market is starting to look past the US vs Chinese trade dispute as a source of concern short term. The cancellation of bilateral talks over the weekend led to some opening gaps on Monday, but it’s fair to say that by and large, the positive performance by the Chinese equities and the recovery in risk leading up to the FOMC is the proof in the pudding one needs to come to grips on the realization that the market has moved on. China has plenty of tools at their disposal to mitigate the short-term negative impact in the economy, and it looks as though the offsetting effect of the trade tariffs via a lower yuan exchange rate is at play once again, as the local currency is edging closer to a potential breakout of the Sept range between 6.82-6.88.

On emerging markets, our prop EM currency index, which monitors 7 of the most EM-linked currencies has come to a crossroads this week, as it retests a crucial level of resistance now turned support circa 68. On Wednesday, weakness in the Indonesian rupiah, Argentine peso and the persisting decline in the yuan kept the index bid (negative for risk), but the latest move is characterized by a further recovery in currencies the likes of the South African rand, Russian ruble or Turkish lira, and that’s keeping EM currencies from turning into a renewed source of concern near term. As long as moves are not disorderly, we can look elsewhere for now.

In terms of the other major Central Bank that was due to publish its latest monetary statement, the RBNZ just came in and in line with market expectations, the rate was kept unchanged at 1.75%. Expectations remained the same for the rate projections heading into 2019/2020, stating that the uncertainty around inflation keeps them with an open mind to adjust rates up or down. Overall, the NZD reaction was subdued, as a reflection of the absence of new insights, which tends to be more probable when there is no media conference as was the case today. You can find a note on how the latest statements compare here viaMNI.

A theme to follow closely remains the NAFTA talks, and the sell-off in the Canadian Dollar on Wednesday should be interpreted as a market discounting a no deal in Sept, with the hard deadline of Sept 30 looking like a very distant prospect to be met. The announcement by the White House about the publication of a trade agreement between Mexico and the US opened the can of worms and led to the risk of Canada being left out. There is still time, but the latest news is far from promising as Trump went on his latest bluster noting that Canada has treated us very badly in trade, adding that they are not getting along at all with Canada’s trade negotiators. But it gets worse. Pres Trump has reportedly rejected a one-on-one meeting with Canada PM Trudeau. However, Canada PM Trudeau Spokeswoman said that Trudeau did not request a one-on-one meeting with Trump. Go figure. That’s the lay of the land with Trump.

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